Brief : Projected spending by U.S. financial institutions on financial crime compliance shot up by one-third to $35.2 billion in 2020 compared to the previous year, in part due to "increased due diligence times and costs" brought on by the COVID-19 pandemic, according to a new report that surveyed more than 1,000 compliance professionals globally. The $8.8 billion jump from 2019's $26.4 billion projected figure was the second-highest increase of any country, behind only Germany, which added $9.6 billion to its expected tally for the year, according to the report from LexisNexis Risk Solutions. The report shows that virtually all regions of the world experienced sizable year-over-year percentage increases, with the global total across all financial institutions jumping to $213.9 billion in 2020 from $180.9 billion in 2019. "In large part what we're seeing is the effects of COVID-19 and what that's done to shape the regulatory environment and the desire [of companies] to have the right amount of scrutiny in a timely manner," Leslie Bailey, vice president of financial crime compliance for LexisNexis Risk Solutions, told Law360. Labor costs in the U.S. were a main driver of the upticks, accounting for 60% of the total spend in 2020 compared to 54% in 2019. The surge in labor costs could be attributed to additional contracting or entry-level hiring to address increased alert volumes and risks during COVID-19, the report notes.
Brief: Fund inflows slowed in May after the flood of new capital that poured in during March and April, according to the latest Fund Flow Index (FFI) from Calastone, the world’s largest funds network. Even so, inflows to equity funds reached GBP2.2 billion, their eighth best in any month on Calastone’s record, and more than twice the monthly average over the last year. Investors are showing a particular preference for emerging market funds. They saw the second-highest inflow on record in May (GBP256 million), worth roughly one percent of the segment’s funds under management in a single month. By value, global funds saw the biggest inflows (GBP1.25 billion), their fourth-best month, but as the largest fund category this was a much smaller addition relative to funds under management than for emerging markets. Nervousness about a third Covid wave and about potential delays to lockdown easing in the UK dampened enthusiasm for UK-focused equity funds, however. Flows for the month overall were still positive to the tune of GBP147 million, but this was a sharp reduction compared to March and April (+GBP907 million between them). From 11th May onwards, net flows even turned negative as the UK news darkened with an acceleration in infection levels. European funds remained in the doghouse too with just GBP31m of inflows, a rounding error in the context of GBP1.7 billion of combined buy and sell orders.
Brief: The European Central Bank is expected to leave its stimulus efforts running at full steam Thursday — even as the economy shows signs of recovery thanks to the easing of pandemic restrictions. And that could present a challenge for ECB head Christine Lagarde. She faces a balancing act: acknowledging improving economic data without triggering a premature market reaction that anticipates the eventual reduction in central bank support for the economy. Any talk of a stimulus taper could mean higher borrowing costs for companies — the last thing the ECB wants right now. “Even if economic developments would in our view clearly justify at least having a first tapering discussion, the sheer mention of such a discussion could push up bond yields further and consequently undermine the economic recovery before it has actually started,” said Carsten Brzeski, global head of macro at ING bank. The central bank for the 19 countries that use the shared euro currency has been purchasing around 85 billion euros per month in government and corporate bonds as part of a 1.85 trillion euro ($2.25 trillion) effort slated to run at least through early next year. The purchases drive up the prices of bonds and drives down their interest yields, since price and yield move in opposite directions. That influences longer-term borrowing costs throughout the economy, sending them lower.
Brief: Investors have withdrawn £800m from M&G’s property portfolio and feeder fund since they re-opened for dealing on May 10. According to data from Morningstar, £789m was withdrawn from the main fund in the past four weeks. This was met by the fund's liquidity, which has been supported by some recent sales. The property fund’s value was around £2.1bn before the re-opening. At the time, the fund’s authorised corporate director and its depositary said the fund’s cash weighting was 33 per cent, which translates to about £709m. The fund had a further £253m of assets which were exchanged or under offer, which have all now sold, and it can generate a further £73m from investments held in a REIT, which can be sold down quickly to generate further cash. During the fund’s gating, around 38 properties were unloaded at a combined -0.1 per cent discount to net asset value, which reduced the portfolio’s exposure to retail from 38.4 per cent to 28.1 per cent and pushed it overweight industrials. The fund continues to target 20 per cent liquidity. M&G Investments did not want to comment on fund flows outside of reporting periods but said they have been consistent with expectations.
Brief: During the height of the Covid-19 pandemic, one asset proved to be a better safe haven than gold: green bonds. Climate-friendly debt served as a better protection against large market fluctuations than gold, as well as performing better than other environmental, social, and governance investments, according to new research from Imran Yousaf of Pakistan’s Air University, Muhammed Tahir Suleman of the University of Otago in New Zealand, and Riza Demirer of Southern Illinois University Edwardsville. In the paper, the trio argued that green bonds were the “preferable safe haven” investment for passive investors hoping to defend their portfolios against the “uncertainty” of the pandemic. Conventional stock portfolios that included green bonds saw the highest risk-adjusted returns during the pandemic when compared against equity portfolios supplemented by gold and other ESG assets, the researchers found. In a market downturn like the one seen at the onset of the pandemic, non-risky assets are few and far between. Investors often turn to gold as a familiar, if weak, safe haven asset — but green investments may be able to fill that role, according to the study.